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STRATEGIC
ACTIONS:
STRATEGY
FORMULATION
Acquisition and
Restructuring
Strategies
Strategic
Management
Seventh edition
KNOWLEDGE OBJECTIVES
Studying this chapter should provide you with the strategic
management knowledge needed to:
1. Explain the popularity of acquisition strategies in firms competing in
the global economy.
2. Discuss reasons why firms use an acquisition strategy to achieve
strategic competitiveness.
3. Describe seven problems that work against developing a
competitive advantage using an acquisition strategy.
4. Name and describe attributes of effective acquisitions.
5. Define the restructuring strategy and distinguish among its
common forms.
6. Explain the short- and long-term outcomes of the different types of
restructuring strategies.
2007 Thomson/South-Western. All rights reserved.
72
Acquisition
One firm buys a controlling, or 100% interest in another
firm with the intent of making the acquired firm a
subsidiary business within its portfolio.
Takeover
A special type of acquisition when the target firm did not
solicit the acquiring firms bid for outright ownership.
2007 Thomson/South-Western. All rights reserved.
73
FIGURE
7.1
Reasons for
Acquisitions and
Problems in
Achieving
Success
74
Reshaping firms
competitive scope
Increased
diversification
Increased
market power
Overcoming
entry barriers
Making an
Acquisition
Cost of new
product
development
Increase speed
to market
75
76
77
78
Acquisition of a supplier or
distributor of one or more of the
firms goods or services
Increases a firms market
power by controlling additional
parts of the value chain.
79
Acquisition of a company in a
highly related industry
Because of the difficulty in
implementing synergy,
related acquisitions are often
difficult to implement.
710
Cross-Border Acquisitions
Acquisitions made between companies with
headquarters in different countries
Are often made to overcome entry barriers.
Can be difficult to negotiate and operate because of the
differences in foreign cultures.
2007 Thomson/South-Western. All rights reserved.
711
712
713
714
715
716
Too large
Managers
overly focused on
acquisitions
Too much
diversification
Problems
with
Acquisitions
Extraordinary debt
Inability to
achieve synergy
717
718
719
720
721
722
723
724
725
726
TABLE 7.1
Attributes
1. Acquired firm has assets or resources that are complementary to the acquiring firms
core business
2. Acquisition is friendly
3. Acquiring firm conducts effective due diligence to select target firms and evaluate the
target firms health (financial, cultural, and human resources)
4. Acquiring firm has financial slack (cash or a favorable debt position)
5. Merged firm maintains low to moderate debt position
6. Acquiring firm has sustained and consistent emphasis on R&D and innovation
7. Acquiring firm manages change well and is flexible and adaptable
Results
1. High probability of synergy and competitive advantage by maintaining strengths
2. Faster and more effective integration and possibly lower premiums
3. Firms with strongest complementarities are acquired and overpayment is avoided
4. Financing (debt or equity) is easier and less costly to obtain
5. Lower financing cost, lower risk (e.g., of bankruptcy), and avoidance of trade-offs that
are associated with high debt
6. Maintain long-term competitive advantage in markets
7. Faster and more effective integration facilitates achievement of synergy
727
Friendly
Acquisitions
Careful Selection
Process
Maintain Financial
Slack
728
Results
Flexibility
Has experience at
managing change and is
flexible and adaptable
729
Restructuring
A strategy through which a firm changes its set
of businesses or financial structure.
Failure of an acquisition strategy often precedes a
restructuring strategy.
Restructuring may occur because of changes in the
external or internal environments.
Restructuring strategies:
Downsizing
Downscoping
Leveraged buyouts
2007 Thomson/South-Western. All rights reserved.
730
731
732
733
FIGURE
7.2
734